Widely-held concern that foreign purchases of houses, particularly from people born in China, are pushing up the price of housing in Australia, has prompted a federal parliamentary inquiry into foreign investment in residential real estate.

Kelly O’Dwyer MHR (Liberal, Victoria)

Last March, the House of Representatives standing committee on economics established the inquiry to examine:

• the economic benefits of foreign investment in residential property;

• whether such foreign investment is directly increasing the supply of new housing and bringing benefits to the local building industry and its suppliers;

• how Australia’s foreign investment framework compares with international experience; and

• whether the administration of Australia’s foreign investment policy relating to residential property can be enhanced.

The inquiry is being chaired by Victorian Liberal MP Kelly O’Dwyer, who said, “‘This inquiry is not focused on investors from any particular country into Australia’s real estate market.”

Her comments are strange, as uncontradicted newspaper reports claim that some of Australia’s largest real estate companies have been selling residential properties directly into the Chinese market, pushing up prices for Australian buyers.

There is no doubt that popular concern is driven by perceptions that Chinese buyers dominate the top end of the local property market. These perceptions have been fuelled by instances of Chinese buying multiple properties at recently-held auctions.

But it seems that the parliamentary inquiry will not look at residential purchases by Chinese Australians, who are Australian citizens.

Official figures show that there are about 400,000 people living in Australia who were born in the Peoples Republic of China — not far behind the number of people from New Zealand. If one adds those born in Hong Kong and Taiwan, the number of Chinese-born residents in Australia is over half a million.

Almost all seek Australian citizenship on coming here, and make excellent citizens.

Research by the International Monetary Fund (IMF) shows that Australia is among a small group of countries that have house price-to-income and price-to-rent ratios that are well above their historical averages.

IMF research shows that Australia ranks third behind Belgium and Canada in a 24-country comparison when it comes to deviation of the house price-to-income ratio from the historical average.

The IMF also uses the ratio of house prices to rents as an additional means of measuring home values. This shows that Australia ranks fifth-most expensive behind Belgium, Norway, New Zealand and Canada when measured against the long-term average.

According to the Property Council of Australia, the IMF data gives a strong indication that Australian homes are among the most expensive in the world.

As China is running huge trade surpluses, it has the capital to invest in business and property anywhere in the world. According to the Australian Bureau of Statistics (ABS), Australia is one of China’s favourite investment destinations.

Federal Treasurer Joe Hockey has put out the welcome mat to Chinese investment.

He said: “We are open for business, and that includes state-owned enterprises out of China. The approvals I’ve given over the last nine months illustrate that. China State Grid’s biggest investment outside of China is in Australia.”

Chinese investment in Australia has increased 10-fold since 2005 and totals $57.2 billion, which makes the country the second largest destination for Chinese investment behind the United States.

China has been asking Australia to liberalise the conditions under which its state-owned businesses can invest in Australia.

At present, private investment from China must be approved by the Foreign Investment Review Board when it exceeds $248 million. Although the FIRB has not prevented any Chinese investment, Beijing wants the threshold lifted to $1 billion.

Having encouraged Chinese investment, the government logically must welcome Chinese coming here to manage those investments.

Investment in residential property falls far below the existing threshold of $248 million, so in general is not affected by current investment limits.

However, non-citizens are not supposed to purchase existing residential housing in Australia, and there are restrictions on permanent residents.

Meanwhile, there are no restrictions on people who have acquired Australian citizenship, as they fall outside the terms of the parliamentary inquiry.

Interestingly, the Real Estate Institute and the Urban Development Institute of Australia — which represents property developers — deny that foreigners are pushing up prices of residential property.

They argue that the causes of rising house prices are limits on the supply of land and investment in services such as water, electricity and other infrastructure.

Both organisations and their members benefit from increased investment in housing, from whatever source.

In all the circumstances, there seems no likelihood that this inquiry will deal with the problem of foreign capital driving up the price of residential property.